Companion methodology note to Sulco Study No. 1, Indonesia and the MSCI Standalone Proposal (29 October 2026). Every figure here matches the deck and the one-page summary.
Results
The scenario-weighted IHSG is about 4,710, 9% below the 5,200 model base, or 12% lower in USD terms. Standalone is the base case at 50%. This is a scenario range, not a price target.
| Scenario | Prob. | USD/IDR | MSCI block | IHSG mid | IHSG range | vs 5,200 | USD return |
|---|---|---|---|---|---|---|---|
| A. Reforms accepted | 15% | 17,800 | +39% | 6,910 | 6,610-7,220 | +33% | +36% |
| B. Status quo | 25% | 18,200 | 0% | 5,200 | 5,020-5,380 | 0% | 0% |
| C. Frontier | 10% | 18,900 | -15% | 4,560 | 4,270-4,850 | -12% | -16% |
| D. Standalone | 50% | 19,500 | -31% | 3,830 | 3,550-4,110 | -26% | -31% |
| Weighted | 4,710 | -9% | -12% |
Model base: IHSG 5,200 and USD/IDR 18,180; the 27-29 Oct closes were 5,266-5,284. Moving the Standalone probability to 40% or 60% (10 points to or from B) gives 4,840 or 4,570. Timeline assumed: MSCI proposal 15 Oct 2026, feedback to 30 Apr 2027, decision by 30 Jun 2027, effective at the November 2027 review (our assumption).
How the probabilities are set
The four probabilities are Sulco judgement, anchored on two things: what MSCI has said, and how past downgrade consultations ended.
MSCI’s stated intent. The 15 October 2026 release says MSCI “expects to proceed” unless the consultation identifies clear evidence of material improvement in market governance and functioning. The consultation paper sets no implementation date and asks respondents whether Frontier would be more appropriate. The release reports participant feedback that Frontier would not reflect the depth of the problems.
| Consultation | Proposed move | Issue | Outcome |
|---|---|---|---|
| Greece, 2012-13 | Developed to Emerging | Accessibility, capital controls risk | Downgraded |
| Morocco, 2012-13 | Emerging to Frontier | Size and liquidity | Downgraded |
| Nigeria, 2016-17 | Frontier to Standalone | FX convertibility | Decision deferred, then kept in Frontier after the central bank opened a new FX window |
| Argentina, 2020-21 | Emerging to Standalone | Capital controls | Downgraded |
| Pakistan, 2021 | Emerging to Frontier | Size and liquidity | Downgraded |
| Nigeria, 2022-23 | Frontier to Standalone | FX liquidity | Downgraded after about 16 months |
Reading. Five of six ended in a downgrade, so the record implies roughly 80%; we use 60% for a downgrade of some kind (Standalone 50%, Frontier 10%). The record also guides the split. MSCI stood down once (A), deferred or extended twice (B), used Frontier for size and liquidity problems (C) and Standalone for access problems (D). We sit below the 80% for three reasons. First, MSCI’s test here is conduct: enforcement against coordinated trading and reliable ownership and free-float data across the market. That is within the control of OJK and IDX, unlike the size test that moved Pakistan and Morocco. Second, reforms are already under way (fines of more than $100m, the 15% free-float roadmap, 1% ownership disclosure). Third, the one precedent where policy changed mid-consultation, Nigeria in 2017, ended without a downgrade. Six cases are a small sample, so the record is a reference point, not a rule.
| Scenario | Prob. | Basis |
|---|---|---|
| A. Reforms accepted | 15% | MSCI stood down in 1 of 6 past cases (Nigeria 2017, after a policy fix during the consultation). Needs market-wide evidence of enforcement by 30 April 2027; six months is short to build a record. |
| B. Status quo | 25% | MSCI extends the review when reforms are partly done (Nigeria 2017; Nigeria 2022-23 ran about 16 months). The index freeze stays. |
| C. Frontier | 10% | MSCI used Frontier for size and liquidity problems (Morocco 2013, Pakistan 2021) and Standalone for access problems (Argentina 2021, Nigeria 2023); Indonesia’s issue is access. Still asked about in the paper; participant feedback reported by MSCI calls it too mild; Indonesia would be about 21% of the Frontier index. |
| D. Standalone | 50% | MSCI’s stated default; 5 of 6 past cases ended in a downgrade. Discounted from the ~80% rate for the reasons above. |
Sensitivity. Each 10 points moved between D and B shifts the weighted IHSG by about 140 points: Standalone at 40% gives about 4,840, at 60% about 4,570, at 70% about 4,440. If MSCI publishes an interim report, or after its November 2026 index review, the probabilities will be revisited and the change logged below.
Flow model
Standalone triggers about $11.6bn of index-linked selling (range $8.0-23.3bn) and $17.4bn gross foreign selling once other foreign money is added. Index-tied money = benchmarked AUM x Indonesia's index weight.
| Component, Standalone | Basis | USD bn |
|---|---|---|
| Passive index funds | Goldman estimate, top of published range | 5.6 |
| Active funds | 75% of ~$8bn benchmarked active holdings (100% in stress) | 6.0 |
| Index-linked total | 11.6 | |
| Other foreign money | 10% of ~$58bn non-benchmarked foreign holdings | 5.8 |
| Gross foreign selling | 17.4 | |
| Less Danantara support | $5bn case; reported $3-5bn, unconfirmed | -5.0 |
| Net selling pressure | 12.4 |
Frontier: index 5.6, active 3.6 (45%), other 2.9 (5%), Frontier funds -1.0, gross 11.1. Stress gross: $34.9bn. Reforms accepted: +$7.4bn as the weight rebuilds from 0.43% to about 1.0% of ~$1.3tn EM benchmarked assets.
Forced selling in the nine MSCI Standard stocks = 0.85 x $5.6bn + 0.9 x $6.0bn = $10.16bn, split by estimated weight: BBCA 3.39, BBRI 1.96, BMRI 1.51, TLKM 1.03, BBNI 0.63, ASII 0.60, BRMS 0.55, BRPT 0.45, UNTR 0.03 (USD bn). The other ~$1.4bn falls on the 10 Small Cap names (~$0.8bn) and holdings outside the nine. The flows are a consistency check on the IHSG model, not an input to it.
IHSG model
The IHSG is split into two blocks: the 9 MSCI stocks (~24% of IDX value) and the rest of the market (76%), which moves at 0.8x the MSCI block.
MSCI block = 712 x P/E x (1 + non-FX EPS change) x (1 - 0.5 x rupiah depreciation) x (1 - 5 x FX-driven outflow / 504)
IHSG change = 0.24 x block change + 0.76 x 0.8 x block change = 0.848 x block change
| Parameter | A | B | C | D |
|---|---|---|---|---|
| MSCI P/E | 10.0x | 7.3x | 6.5x | 5.5x |
| Non-FX EPS change | 0% | 0% | -1% | -3% |
| Rupiah depreciation vs 18,180 | -2% | 0% | +4% | +7% |
| FX-driven outflow, USD bn | -0.3 | 0 | 1.2 | 2.2 |
FX-driven selling: $0.3bn per 1% fall, half that as inflow when the rupiah rises. Price multiplier 5 (Gabaix and Koijen). P/E bands are Sulco judgement; no clean valuation benchmark exists for a Standalone market.
Sensitivities on Standalone (3,830): P/E ±0.5x = ±280 points; rest-of-market beta 0.6-1.0 = ±245; USD/IDR ±1,000 = ∓140; EPS sensitivity to the rupiah +60 / -115; FX-driven selling +35 / -70; multiplier +25 / -40.
Rupiah overlay
| Standalone, USD/IDR mid-2027 | IHSG | USD return |
|---|---|---|
| 18,200 | 4,010 | -23% |
| 19,500 (base) | 3,830 | -31% |
| 20,000 | 3,760 | -34% |
| 21,500 (stress) | 3,560 | -42% |
2026 data imply about $0.54bn of foreign selling per 1% of depreciation; we use $0.3bn because part of that selling is already counted in the MSCI flows.
Absorption and Bank Indonesia
Supply to November 2027 is ~$19.6bn ($17.4bn foreign selling + $2.2bn free-float stage 1). Identified domestic demand is $8.3-10.3bn: Danantara $3-5bn (reported), unused buybacks $2.3bn, BPJS Ketenagakerjaan $1.6bn, insurers $0.5bn, voluntary pension funds $0.5bn, equity mutual funds $0.4bn. Coverage is 42-53%; the $9-11bn gap clears through retail buyers and lower prices.
Possible total foreign outflow is $20-23bn (equities $17.4bn, SRBI $1.6-3.2bn, SBN $1.5-2.5bn), 14-16% of $146.3bn reserves, comparable to 2013 and 2018 (~$17bn each). On 21 Oct BI held its 5.75% rate and raised the deposit facility to 5.00%.
Comparison with published estimates
MUFG $3.1bn ($5.5bn stress); Goldman Sachs $5.6bn (+$2.7bn if FTSE follows); Samuel Sekuritas $5.8-7.3bn; Sulco base $11.6bn and all-in $17.4bn; UBS $19bn; Sucor ~$40bn including bonds.
Assumptions, data gaps and change log
Key judgements. scenario probabilities (basis in “How the probabilities are set”), the November 2027 effective date, 75% active selling, Danantara $3-5bn, estimated stock weights, FX-driven selling of $0.3bn per 1%, FTSE not modelled in the base case.
Data still lacking. MSCI benchmarked AUM by fund type, stock-level foreign ownership by fund type, Danantara's mandate, OJK's final free-float timetable.
Change log. base moved from 5,266 to 5,200; Standalone IHSG from 3,690 to 3,830 after the two-block model replaced a whole-index P/E; Frontier probability cut to 10%; 29 Oct: probability basis published and the Frontier rationale corrected (MSCI asks about Frontier; it has not rejected it); flows relabelled as a consistency check; rupiah overlay, absorption and BI sections added; 19 Oct close corrected to 4,996 (-3.64%); review fixes on 29 Oct (coverage 42-53%, stock residual, Frontier detail, glossary).
Disclaimer
Prepared by Ade S for Sulco Advisory for information and discussion. Not investment advice. The author may hold positions in securities mentioned and may trade them; views are the author's own. The note does not take into account any person's objectives or circumstances. Figures come from public sources believed reliable but not verified; scenarios and estimates are forward-looking judgements that may prove wrong. Sulco Advisory has no obligation to update this note. © 2026 Sulco Advisory.